Dow (DOW) is set to benefit from near-term polyethylene margin gains driven by supply and feedstock disruptions in Europe and the Middle East, seasonal demand improvement, and cost cuts, RBC Capital Markets said Sunday in a report.

Management believes the effective utilization rate may rise above 90% in Q2, giving Dow greater pricing leverage, and RBC now expects H1 earnings before interest, taxes, depreciation and amortization of $2.01 billion, up from the prior estimate of $1.72 billion. Polyethylene is the world's most widely used plastic.

A widening oil-to-gas ratio, driven by higher crude prices and relatively low US natural gas and ethane costs, should further support Dow's margin expansion, the report said.

RBC also expects tighter inventories, ongoing supply rationalization, and potential upside for Dow's planned net-zero Alberta cracker if Middle East disruptions persist.

RBC upgraded its rating on Dow stock to outperform from sector perform and raised its price target to $40 from $29.

Dow shares rose 5.4% in Monday trading.

Price: 35.08, Change: +1.80, Percent Change: +5.41